The ongoing class-action lawsuit against the City of East Lansing — which challenges the legality of a “franchise fee” imposed on the electric bills of Lansing Board of Water and Light (BWL) customers within the City’s borders — appears to be moving towards a possible resolution following a court hearing on Thursday.
The “franchise fee” was approved by the East Lansing City Council in March 2017 and adds five percent to BWL’s East Lansing customers’ electric bills, money collected by BWL that then goes straight to the City of East Lansing. The suit, which names East Lansing resident and attorney James Heos as the lead plaintiff, basically asserts that these fees are an illegal tax.
After the suit was filed in April 2020, a judge ruled that the suit could proceed as a class action. Heos is now the plaintiff “individually and as representative of a class of similarly-situated persons and entities.”
If you’re a paying BWL customer in East Lansing and you didn’t opt out, if Heos wins, you may obtain a payout. But the City of East Lansing could have to pay back more than a million dollars and lose over a million dollars per year in revenue, a situation that would add to the City’s ongoing financial woes.
At Thursday’s virtual hearing, Judge Wanda Stokes of the Ingham County 30th Circuit Court considered both parties’ requests for summary disposition — basically asking for Stokes to rule summarily in their favor given the evidence and arguments they’d submitted.
Following roughly an hour of oral arguments from attorneys Charles Barbieri of Foster Swift, representing the City, and Greg Hanley of Kickham Hanley, who represents Heos, Stokes said she would be issuing an order in the coming weeks.
“I’m going to issue a written order outlining my rulings on all of the issues raised,” Stokes said.
She continued: “It may be redundant, and I think it’s going to mean a lot of reading for both of you, but I think it’s important that my analysis be there for both sides. Even though it may be repeating some of the same arguments.”
A large portion of the argument from Barbieri in defense of the City and the fee was, as Hanley noted, “affirmative defense.” It dealt with the statutes of limitations on the various counts being pursued by the plaintiffs, and the overall validity of the legal challenge to the franchise fee.
But one specific argument made by Barbieri, and picked out by Stokes, is that these franchise fee payments are voluntary on the part of BWL customers.
The franchise fee in question relates to ordinances passed by the City Council defining where BWL and Consumers Energy can do business. For 89% of property owners in the City, BWL is the only option for obtaining electricity through the grid. Consumers is the option for the remaining 11%. A property owner doesn’t get to choose which service it obtains.
“I don’t think I clearly understand your argument that that somehow gives the residents of East Lansing” a choice, Stokes said to City attorney Barbieri. “If they opt out — I understand when you say there are other means of getting electricity — but if they opt out of being serviced by Board of Water and Light and being subject to this 5%, they don’t have any [electrical] service. And they can’t go to Consumers because Consumers is essentially blocked from servicing those areas.”
“That’s correct, your Honor,” Barbieri said. “The franchise fee was designed to provide that the Board of Water and Light would have an exclusive service area to provide that. I do submit that there are certainly ways one can minimize one’s use of electrical energy so they are not aggrieved” by the fee.
There was a pause.
“And these, the payments — your argument is that this is a voluntary payment?” Stokes asked.
“That’s our argument, your Honor,” Barbieri replied.
“Because they have these other means?” Stokes asked. “Alright.”
The “other means” Stokes mentioned were ideas Barbieri said residents could use to lower or avoid most or all of the franchise fees: dramatically cutting back on their electricity use, installing solar panels to operate off the BWL electrical grid, and the like.
Hanley was then up to make the case for the plaintiffs. His argument centered around the fact that the money derived from this fee is ultimately ending up in the City’s coffers and gets used for spending that isn’t for work in the utilities right-of-way granted to BWL in conjunction with this fee.
BWL, Hanley said, is effectively just the collection agency of this fee for the City. In his argument for this, Hanley pointed to the franchise agreement, the controlling document.
The section entitled “Franchise Fee” reads, in part, that “the Grantee [BWL] shall, upon acceptance of the City, collect and remit to the City a franchise fee in an amount of five percent (5%) of the revenue, excluding sales tax from the retail sale of electric energy by the Grantee within the City, for the use of its streets, public places, and other facilities, as well as maintenance, improvements and supervision thereof. Such fees will appear on the corresponding energy bills.”
Hanley suggested that this shows the funds are going to the City and not to BWL for service-related costs.
He pointed out that, per the franchise agreement, BWL is also charging customers 0.5% “of collected franchise fees” for serving essentially as a financial processing agency for the City.
“This is not a franchise fee imposed on the LBWL. And the reason we know that is because the LBWL insisted that the agreement be structured so the LBWL was solely the collection agent for this,” Hanley said, before backing up that point with minutes from a BWL meeting.
“To construe the agreement otherwise would be to pervert the intention of the parties,” Hanley said.
Hanley continued, pointing out that previously, prior to this lawsuit being filed, then-Mayor Mark Meadows had publicly made clear the City’s intentions to spend the money on the City’s pension debt. Hanley said that only after the lawsuit was filed did the City dedicate money to the Department of Public Works to say the money was going to improve the right-of-way.
He also addressed the statute of limitation arguments that Barbieri had made, noting that they can recover money for the past 12 months.
“Let’s assume it’s all put toward the right-of-way: It’s still a tax because it’s raising revenue to relieve the [City’s] General Fund of its obligation to fund these activities,” Hanley said.
Hanley also sought to address the point of the payments being voluntary.
“Taking this to its logical extreme, people could move out of the City to avoid them. But these aren’t practical solutions to this,” Hanley said. “This is an effectively compulsory thing.”
Stokes did not indicate what her rulings on the requests might be. A full video recording of the hearing is available here.